Bank of America Corp. has stopped selling Visa-branded gift cards to consumers over the Internet and the phone, because of poor cross-selling and legislative and regulatory issues.
The Charlotte company will still sell gift cards in bulk to commercial customers and will continue its cobranded Visa gift card partnership with Simon Property Group Inc.
Eduardo Vergara, the prepaid card executive at B of A, said it will focus on marketing those and other prepaid cards, such as payroll cards, that fit in better with its goals.
“Our focus as a bank in prepaid cards is to build a relationship,” Mr. Vergara said. “Consumer gift cards are a transactional product. You sell one, and they use it, and you have to sell it all over again. It did not help us start relationships.”
It also did not help that the consumer gift cards have attracted attention from lawmakers, who have complained loudly about expiration dates and dormancy fees and have even suggested nationwide legislation banning certain fees.
“The legislative environment and all the litigation around gift cards” weighed into the decision to drop the consumer cards, Mr. Vergara said, but he insisted that the issues were secondary ones.
This month Simon settled a lawsuit filed by New York Attorney General Eliot Spitzer over its gift card’s $2.50 monthly fee, $5 replacement fee, and other fees. Simon paid a $125,000 penalty and agreed to disclose its replacement fee and drop the monthly fee for the first year after the card was issued. Similar suits have been filed in Massachusetts and Connecticut.
Despite all the fees, the Simon gift card has been popular. Sales grew 20% last year, to 6.3 million cards worth more than $400 million, according to the Indianapolis operator of shopping malls, including 11 in New York.
B of A stopped offering the Visa gift cards directly March 3. Cards that have already been issued will remain valid until their expiration date, usually 12 to 18 months after issuance. B of A never sold the cards at its branches.
Mr. Vergara would not say how many consumer gift cards B of A has sold, except to say they were profitable and that sales had improved by more than 75% over the past year. “They were profitable as a stand-alone product but did not generate sales of other products, while on the commercial side, they do,” he said.
B of A was one of the first big banking companies to offer gift cards; it launched five in 2001.
Mr. Vergara said its prepaid SafeSend card, which consumers use to send money to friends or relatives in Mexico, has a better track record of expanding sales. More than two-thirds of new SafeSend customers were previously unbanked and got their first checking accounts from B of A, he said.
Though some gift card customers were repeat buyers, they rarely signed up for other products, he said. The sales tended to peak twice a year — between Nov. 15 and Dec. 31, and when schools let out in late May.
Some banking companies call their gift card programs successful. A spokeswoman for Wells Fargo & Co. said it began offering the cards in September and is happy with the program. A spokeswoman for U.S. Bancorp said it is still selling gift cards, which it began offering in its branches in 2003.
John Gould, the director of the consumer lending and bank cards practice at TowerGroup, a research unit of MasterCard International, said suits and legislation aimed at gift cards are complicating banks’ efforts to offer the product.
“It is a minefield in that each state has its own version of what it is interested in,” Mr. Gould said. “If we have to deal with 50 states’ gift card regulations, it becomes a significant issue in terms of the viability of the product. We need to find a standard common middle ground, so that at the end of the day the market has a product consumers like and want.”
In a statement issued in response to the B of A cancellation, Visa U.S.A. Inc. said that its gift cards were popular and that more than 450 member banks and thrifts issued them last year.
